Supply Chain as a cause of current oil price hikes

Filed in archive News on September 29, 2005

Financial Times reported on Tuesday that The Organisation of the Petroleum Exporting Countries has had "no takers" for the oil it offered the market a week ago, said Ali Naimi, Saudi Arabia's energy minister.

The problem, OPEC has long maintained, is a major constraint in refining capacity. This has been made worse by the 2m barrels a day of gasoline production that was lost because of damage caused by hurricane Katrina at the end of August and by the facility shutdowns ahead of Hurricane Rita this month.

"There is a limit as to what we can do," to bring down prices, Mr Naimi said. "We can offer [oil] supply, but that's not going to help moderate the price until the whole supply chain is even."

"There is no shortage of petroleum resources left in the world to produce," he told the World Petroleum Congress in Johannesburg. "The problem we face is not one of availability, it is a problem of deliverability."

In my point of view, I think this is a kind of problem that seems to be out of control, at least in short term. Lack of adequate infrastructure, Natural Disasters and constraints regarding cogfiguration of refinaries and supply points are are among the most important causes behind this delivery problem. The least can be done is try to achieve regional efficiencies in critical parts of oil supply chain.